How a College Education Can Close the Income Gap

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Whenever the problem of stagnating working class incomes and growing inequality is raised, a call for improved education to level the playing field is sure to follow.

If we equalize opportunity, we are told, giving everyone a decent chance of success, outcomes will improve and any remaining inequality will be justified by differences in merit. There will be no need to use income redistribution – higher taxes on the wealthy and more transfers to those at the lower end of the income distribution – to make up for inequities in opportunity.

Of course, even if we set aside the fact that unequal outcomes are driven in part by factors such as differences in economic and political power, market failures that advantage some people over others, and the legacy of past inequities, that is, even if we assume that inequality is solely due to differences in individual merit, equalizing opportunity is impossible. When outcomes are unequal, the children of the wealthy will always have advantages and opportunities that are not available to lower income households. But that doesn’t mean we can’t do better.

Unfortunately, educational opportunity is getting worse, not better. It is becoming more difficult for qualified low-income students to attend a four year college. As a recent report “Undermining Pell” from the non-partisan New America Foundation notes, the net cost of going to a four year college, that is, tuition “after all grant aid has been exhausted,” has been rising.

The analysis in the paper “shows that hundreds of public and private non-profit colleges expect the neediest students to pay an amount that is equal to or even more than their families' yearly earnings. As a result, these students are left with little choice but to take on heavy debt loads or engage in activities that reduce their likelihood of earning their degrees, such as working full-time while enrolled or dropping out until they can afford to return.” It is not unusual, for example, for students from families making less than $30,000 per year to be asked to pay more than $10,000 per year to attend a state funded institution, and it’s even worse at private colleges.

Because of the rising cost of both public and private universities, many low income students are increasingly pursuing another path to higher education, through a community college. The share of low-income students at community colleges, for example, increased from 48% to 58% from 1982 to 2006 according to a recent Century Foundation report, “Bridging the Higher Education Divide.”

Community colleges are an extremely valuable educational resource, but this has not been an effective path to a four year degree. “Eighty-one percent of students entering community college for the first time say they eventually want to transfer and earn at least a bachelor’s degree, but just 12 percent do so within six years” according to the Century Foundation report.

By contrast, “Among low-income students with “high” qualifications for college…69 percent of students who began in a four-year institution earned a bachelor’s degree, compared with just 19 percent of those who started in a community college.“ One reason for this is that funding has not kept up with the increasing demand for community college education. Community colleges do not have the resources they need to do the important job they are asked to do.

So what should be done? My first choice would be to make it possible for all qualified low income students to attend a four year college without taking on dangerous levels of debt. If it was up to me tuition would be free, but I understand the need for students to have “some skin in the game.” However, students from low income families shouldn’t have to work so much that it disadvantages them relative to their wealthier peers.

Second, we need to do a much better job of supporting community colleges. Even if we remove the financial hurdles that prevent low-income students from attending four year colleges, community colleges will still be extremely important and valuable resources. Community colleges serve non-traditional students, they provide a second chance for those who did not get adequately prepared for college during their high school years, they are a source of occupational training and retraining, and they provide many other essential services to their communities. Community colleges serve nearly half the undergraduates in the US, and we must do a better job of supporting these institutions.

Yes, it will cost us money to improve educational opportunities. Investments in the future always do. And yes, that will require some people to pay more in taxes so that others can better compete against their own offspring, something they may be reluctant to do. But investing in our future and producing productive tax-paying citizens – allowing more of our children to reach their potential – will make us all better off in the long-run.

University of Oregon macroeconomist Mark Thoma writes primarily about monetary policy its effect on the economy. He has also worked on political business cycle models. Thoma blogs daily at Economist’s View.